By Scott Hamilton
Oct. 28, 2020, © Leeham News: A key supplier to Airbus and Boeing believes there will be a “significant upturn” in passenger traffic and aircraft demand in 2022, well before consensus.
Hexcel provides composites and other materials for the Airbus A320 and A350 and Boeing 737 MAX.
And Raytheon Technologies sees passenger traffic returning to pre-COVID levels in 2023, depending on widespread use of vaccines.
Consensus is a return to pre-COVID levels in 2024.
In its 3Q2020 earnings press release Oct. 20, Hexcel’s CEO, Nick Stanage said, “The overall long-term demand for aircraft and our advanced composites technology remains robust, and the potential for a significant upturn in 2022 and beyond looks positive.”
The actions we are taking will ensure that Hexcel emerges from the effects of this pandemic stronger than ever. As we do, our liquidity will have been strengthened, our cost structure will be reset, and we will be well positioned to deliver strong shareholder returns.”
Quizzed on the earnings call, Stanage elaborated:
“In general it’s not one thing but from our view people want to travel. People want to get out, go places, visit and as the borders open up as medical advances continue, as vaccines are released people are going to get back out travel. I believe there’s a huge pent-up demand and even on the business side businesses need to get out visit customers visit sites do business. And I believe that’s going to recover again as the epidemic and the understanding and the social distancing and the new processes and procedures gets confidence. So that’s the big thing,” Stanage said.
“Second, if I look at what we’re going through today the destocking, destocking is a one-time effect. Now granted, it’s layered down by program and every production cut takes more destocking but it is one time and once it’s done and you’re right-sized, there is a tremendous upside opportunity once the growth comes back because the supply chain will be very lean.
“If you look at narrowbody demand, A320 order intakes continued so that the backlog is where it was even after nine months of bill rates. We’re hopeful and I believe we’re seeing more and more confidence that the Max will return [soon]. Even though there is a large inventory in that supply chain, we still expect Boeing to ramp up and get their supply chain secured and gradually increase over time.”
Stanage said that widebody recovery probably will be slower than narrowbody. International travel will trail domestic travel.
“Having said that, there’s a significant amount of parked aircraft that will be taken out of service and as that travel comes back the replacement of aircraft are going to be highly composite intensive newer airplanes where we have strong positions. It’s just a question of when that happens toward the end of 2021 or early 2022.”
About 68% of Hexcel’s 2019 revenue came from commercial aviation. Eighty-seven percent of this came from Airbus and the rest from Boeing.